VF announces record quarter & full year revenues
4Q revenues reach a record $2.9 billion – including $549 million from Timberland acquisition
Surfersvillage Global Surf News, 16 February, 2012 : - - Greensboro, NC -- VF Corporation announced results for the fourth quarter and full year ended December 31, 2011. Revenues rose 37% to $2,910 million from $2,126 million in 2010, with the Timberland acquisition adding $549 million to revenues. Organic revenue growth in the quarter was 11%. All VF coalitions achieved higher revenues in the quarter, with the strongest growth in Outdoor & Action Sports, where total revenues rose 81% and organic growth was 19%.
Gross margin continued to reflect the impact of higher product costs, declining to 45.2% from 46.6% in the 2010 period. Operating income was $358 million on an adjusted basis in the fourth quarter. This included earnings from the Timberland acquisition of $50 million, excluding acquisition-related expenses of $6.7 million. On a GAAP basis, fourth quarter operating income was $351 million. Operating margin on an adjusted basis was 12.3% in the fourth quarter of 2011 versus 12.9% in the 2010 period. Excluding Timberland, the fourth quarter operating margin increased 10 basis points to 13.0% compared with 12.9% in the 2010 period. Operating margin on a GAAP basis was 12.1% and 3.5% in the fourth quarters of 2011 and 2010, respectively.
Net income on an adjusted basis rose 34% to $262 million from $196 million, while adjusted earnings per share increased 30% to $2.32 per share from $1.78 per share. The Timberland acquisition was accretive to adjusted earnings by $0.34 per share in the quarter. On an organic basis, earnings per share grew 11% to $1.98. On a GAAP basis, net income and earnings per share were $257 million and $2.28, respectively, in the fourth quarter of 2011.
Full Year Results Summary
Revenues increased 23% to $9,459 million from $7,703 million in 2010. Timberland added $713 million to revenues in 2011. Organic revenue growth was 14% (12% in constant dollars), with strong growth across all coalitions. Outdoor & Action Sports revenues rose 42% during the year, with organic growth of 20%. Jeanswear revenues rose 8%; Imagewear revenues grew 13%; Sportswear revenues were up 9%; and Contemporary Brands revenues grew by 11%.
Gross margin was in line with company guidance for the year, declining to 45.8% in 2011 from 46.7% in 2010 due to higher product costs. Operating margin on an adjusted basis was 13.5% in 2011 versus 13.3% in the prior year. Excluding Timberland, the operating margin increased 30 basis points to 13.6%.
Net income on an adjusted basis rose 28% to $913 million from $713 million, while adjusted earnings per share increased 27% to $8.20 from $6.46. The Timberland acquisition was accretive to adjusted earnings by $0.60 per share. Organic earnings per share growth in 2011 was 18%. On a GAAP basis, net income and earnings per share in 2011 were $888 million and $7.98, respectively.
Adjusted Amounts - Excluding Timberland Acquisition-related Expenses and Noncash Impairment Charges
This release refers to adjusted amounts that exclude 1) transaction and restructuring costs related to the acquisition of Timberland, which approximated $6.7 million ($0.04 per share) in the fourth quarter and $33 million ($0.22 per share) for the full year, respectively; and 2) a $202 million pre-tax noncash impairment charge taken in the fourth quarter of 2010. On an after-tax basis, the impairment charge totaled $142 million, which decreased full year 2010 earnings per share by $1.29. Please see the reconciliation of GAAP to adjusted amounts later in this release.
Fourth Quarter Business Review
Outdoor & Action Sports: Outdoor & Action Sports reported another quarter of outstanding revenue and operating income growth. Total global revenues rose 81%, reflecting strong organic growth of 19% and the addition of the Timberland® and Smartwool® brands, which contributed $549 million to revenues. The North Face® brand’s momentum continued in the quarter despite unusually warm weather conditions in both the U.S. and Europe, with global revenues rising 22% and comparable growth in both the Americas and international businesses. In Asia, the brand’s revenues increased 41% in constant dollars. Momentum continued in The North Face® brand’s direct-to-consumer business, where revenues grew over 20% in the quarter.
The Vans® brand achieved another quarter of exceptional growth, with global revenues rising 24% and double-digit growth across its Americas, European and Asia businesses. Vans® direct-to-consumer business generated healthy growth in the quarter, with revenues rising by 21%.
Timberland achieved solid revenue growth, both domestically and internationally, as well as in its direct-to-consumer and wholesale channels, driven by the continued success of the Timberland® Earthkeepers® collection, the Timberland PRO® Series and the Smartwool® brand.
Organic revenue growth in the coalition’s Americas and international businesses continued at double-digit rates of 19% and 20%, respectively. Organic growth in direct-to-consumer revenues for Outdoor & Action Sports was 20% in the quarter, with double-digit increases in The North Face®, Vans® and Kipling® direct-to-consumer businesses.
Operating income for the coalition rose by 52%. Operating income of $274 million included earnings from Timberland of $43 million, including acquisition-related expenses of $6.7 million. Operating margin was 16.9% compared with 20.1% in the 2010 period, with a negative impact of 40 basis points from acquisition-related expenses. Excluding Timberland, operating income increased 24% and the coalition operating margin was 20.9%.
Jeanswear: Global Jeanswear revenues increased 3% (4% in constant dollars) in the quarter, with growth both domestically and internationally. Domestic revenues rose 1% with healthy growth in the Lee® and Western businesses, offset by a small decline in Mass Market revenues. All three businesses continue to gain market share in their respective channels of distribution driven by successful new product innovations for both male and female consumers. International jeans revenues rose 9% (13% in constant dollars), with growth across all international businesses. In constant dollars, Jeanswear revenues in Asia increased 13%; revenues in Mexico, Latin America and Canada each grew at double-digit rates in the quarter; and European revenues increased 4%.
Reflecting the continued impact of higher product costs, Jeanswear operating income and margin both declined in the quarter. Product cost increases have moderated since peak levels seen in the third quarter of 2011, with operating margin comparisons expected to improve beginning in the second half of 2012.
Imagewear: Imagewear finished 2011 on a strong note, with fourth quarter revenues rising 10% and growth in both the Image and Licensed Sports Group businesses. Image revenues maintained its trend of double-digit top line growth, with revenues rising by 14% in the quarter, fueled by continued strength in both its Protective Apparel and Industrial uniform businesses. Licensed Sports revenues grew 5%, driven by new women’s products and differentiated graphics.
Fourth quarter operating income remained relatively stable with the prior year period, with lower operating margin reflecting higher product costs.
Sportswear: Total Sportswear revenues rose 1% in the fourth quarter, driven by a 49% increase in Kipling® brand revenues in the U.S. Nautica® brand revenues declined slightly. The Nautica® direct-to-consumer business performed well in the quarter, with revenues up 7% and strong comparable sales performance, and the brand’s licensing business also experienced solid growth. The Nautica® wholesale business posted a decline in revenues during the quarter primarily due to a shift in timing of shipments from the fourth quarter into the third.
Sportswear operating income and margin both declined in the quarter, due to the impact of higher product costs.
Contemporary Brands: Contemporary Brands revenues increased 12% in the quarter, with growth across the 7 For All Mankind®, John Varvatos®, Splendid® and Ella Moss® brands. Building our contemporary brands’ direct-to-consumer businesses, including new stores and e-commerce, continues to be an important component of our growth plans for these businesses, and during the quarter direct-to-consumer revenues for our Contemporary Brands coalition grew 24%.
The coalition achieved a substantial improvement in profitability in the quarter, reversing the loss of the prior year and achieving an operating margin of 6%.
Expansion in International Revenues (in Constant Dollars)
International revenues increased 68% in the fourth quarter, with 50 percentage points of the growth attributable to the Timberland acquisition. Organic revenue growth in Europe was 14%. In Asia, organic revenue growth was 22% with The North Face® and Vans® businesses each growing in excess of 30% in the quarter, and Jeanswear revenues rising by 13%. Solid growth also continued in India, where revenues increased 14% during the quarter.
For the full year 2011, international revenues grew 37% and accounted for 34% of total revenues compared with 30% in 2010. With more than half its revenues derived from international markets, the Timberland acquisition accounted for 17 percentage points of the total international growth in 2011.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues increased 53% in the quarter, with 37 percentage points of the growth attributable to the Timberland acquisition. Direct-to-consumer revenues of The North Face®, Vans®, and 7 For All Mankind® brands each achieved growth in excess of 20% in the period. A total of 46 stores were opened across our brands in the quarter and 122 stores during the year, bringing the total number of owned retail stores to 1,068 at the end of 2011 (including 215 Timberland stores). At year-end 2011, direct-to-consumer revenues accounted for 19% of VF’s total revenues compared with 18% in 2010.
Cash Flow from Operations Reaches Record Level
Cash flow from operations reached a record $1,081 million in 2011. The increase in long-term debt reflects the financing of the Timberland acquisition. During the quarter, the incremental short-term borrowings related to the Timberland acquisition were repaid, and at year-end the debt-to-total capital ratio was 32%. Inventories excluding Timberland rose 12%, with 9% of the increase due to higher product costs.
2012 Guidance: Strong Top and Bottom Line Growth
“In 2012, our Outdoor & Action Sports business should exceed 50% of total revenues – a new milestone for VF, achieved by a combination of consistent, outstanding organic growth and a track record of successful acquisitions,” said Wiseman. “A big focus for us this year will be on building the foundation to support Timberland’s future growth and to strengthen its profitability. We look forward to a year of healthy growth across our coalitions and to delivering another year of record revenues and earnings to our shareholders.”
2012 revenues should increase by approximately 15% (17% in constant dollars), with Timberland accounting for about $1 billion of the growth. Excluding Timberland, revenues should rise by approximately 6% (8% in constant dollars).
Adjusted earnings per share is expected to rise to approximately $9.30. Included in this guidance is the anticipated negative impact from 1) foreign currency translation, which is expected to reduce earnings by $0.41 per share, and 2) higher pension expense, which will negatively impact earnings by $0.19 per share. Timberland should earn approximately $1.10 per share in 2012 (excluding acquisition-related expenses estimated at $0.20 per share). On a GAAP basis, earnings per share are expected to increase to approximately $9.10.
Gross margin in 2012 should expand by approximately 70 basis points over the 45.8% reported in 2011, as the headwinds posed by higher product costs subside, with all of the improvement occurring in the second half of the year. Operating margin should expand by approximately 20 basis points, which is net of a 30 basis point negative impact from higher pension expense. Timberland’s operating margin should exceed 11% in 2012. Excluding Timberland in both 2011 and 2012, the operating margin in 2012 is expected to improve 40 basis points from 13.6% to 14.0%, including a 40 basis point negative impact from higher pension expense.
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